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U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) is responsible for administering and enforcing a number of federal laws that set basic labor standards. WHD conducts investigations for a number of reasons, all having to do with enforcement of the laws and ensuring an employer’s compliance. An investigator from WHD may conduct an investigation to determine whether the laws it enforces apply to an employer. If the employer is subject to these laws, the investigator will verify that workers are paid and employed properly according to the laws administered and that youths under the age of 18 are employed as provided by the child labor provisions. WHD does not require an investigator to previously announce the scheduling of an investigation, although in many instances the investigator will advise an employer before opening the investigation. The investigator has sufficient latitude to initiate unannounced investigations in many cases in order to directly observe normal business operations and quickly develop factual information . An investigator may also visit an employer to provide information about the application of, and compliance with, the labor laws administered by WHD.
WHD does not typically disclose the reason for an investigation. Many are initiated by complaints. All complaints are confidential, so the name of the worker, the nature of the complaint, and whether a complaint exists may not be disclosed. In addition to complaints, WHD selects certain types of businesses or industries for investigation. WHD often targets low-wage industries because of high rates of violations or egregious violations, the employment of vulnerable workers, or rapid changes, such as growth or decline, in an industry. Occasionally, a number of businesses in a specific geographic area are examined. The objective of targeted investigations is to improve compliance with the laws in those businesses, industries, or localities. Regardless of the particular reason that prompted the investigation, all investigations are conducted in accordance with established policies and procedures.
The WHD has stated that it will focus on fissured industries. These are industries where employers often employ people through various relationships, including employment agencies, contractors and subcontractors, and franchises.
During an investigation, DOL representatives visit a business and gather data on wages, hours, and other employment conditions or practices in order to determine compliance with the law. WHD does not require an investigator to previously announce the scheduling of an investigation, although investigators will often advise an employer before opening the investigation. The investigator has sufficient latitude to initiate unannounced investigations in many cases in order to directly observe normal business operations and develop factual information quickly. If violations are found, the employer may owe back pay, face penalties, and be advised by DOL to make changes in employment practices in order to avoid future violations.
Section 11(a) of the Fair Labor Standards Act (FLSA) authorizes representatives of the Department of Labor to investigate and gather data concerning wages, hours, and other employment practices; enter and inspect an employer’s premises and records; and question employees to determine whether any person has violated any provision of the FLSA. The WHD investigator will identify himself or herself and present official credentials. The investigator will explain the investigation process and the types of records required during the review. An investigation consists of the following steps:
• Visitation and inspection of the business under investigation.
• Examination of up to 3 years of records to determine which laws or exemptions apply. These records include those showing the employer’s annual dollar volume of business transactions, involvement in interstate commerce, and work on government contracts. Information from an employer’s records will not be revealed to unauthorized persons.
• Examination of payroll and time records, and taking notes or making transcriptions or photocopies essential to the investigation.
• Interviews with certain employees in private to verify the employer’s payroll and time records; to identify workers’ particular duties in sufficient detail to decide which exemptions apply, if any; and to confirm that minors are legally employed. Interviews are normally conducted on the employer’s premises. In some instances, present and former employees may be interviewed at their homes or by mail or telephone.
• When all the fact-finding steps have been completed, the investigator will ask to meet with the employer or a representative who has authority to reach decisions and commit the employer to corrective actions if violations have occurred. The employer will be told whether violations have occurred, what they are, and how to correct them. If back wages are owed to employees because of minimum wage or overtime violations, the investigator will request payment of back wages and may ask the employer to compute the amount due.
DOL looks for complete, accurate, and unambiguous pay records for every employee for each pay period from the past 3 years. As a result, it is imperative that employers strive to keep accurate, well-organized wage and hour records that can be produced quickly.
In general, employers in the following categories must comply with the wage and hour requirements of FLSA:
• Employers engaged in interstate commerce or the production of goods for interstate commerce
• All hospitals, schools, and public agencies
Employees in firms not covered by the FLSA might still be protected under the Act if their individual work involves interstate commerce or the production of goods for interstate commerce. Please see the national Fair Labor Standards Act (FLSA) section.
Tip: If an employer believes that it may have wage and hour issues, it should contact an attorney experienced in wage and hour investigations as soon as possible. An experienced attorney can provide details about the employer's rights and responsibilities from the outset.
The FLSA prohibits employers from discharging or discriminating against any employee who files a wage and hour complaint or who provides information during a DOL investigation. As a result, employers should be cautious not to discourage employee cooperation with wage and hour investigations or to respond negatively to any employee who files a wage and hour complaint.
In order to prepare for a wage and hour investigation, consider taking the following steps:
• Appoint a company representative or legal counsel to interact with the DOL investigator.
• Before providing information or documents to DOL, the representative or attorney should determine the scope of the investigation and review all documents before handing them over to DOL.
• Prepare a legal and factual “position statement” for the investigator, outlining any compliance steps taken by the organization.
• Provide managers with relevant information and interview employees in advance so that everyone is better prepared to respond to the investigator's questions.
• Do not discourage employee cooperation with wage and hour investigations or respond negatively to any employee who files a wage and hour complaint.
Cooperation is key. Employers should demonstrate their willingness to cooperate with DOL investigators and to adjust their procedures and policies as necessary to avoid violations in the future.
A U.S. Supreme Court ruling on how the DOL can issue interpretations of its rules has major implications for employers. The U.S. Supreme Court’s decision inPerez v. Mortgage Bankers Association, No. 13-1041 (S. Ct. 2015)means that DOL’s most recent interpretation that mortgage loan officers are eligible for overtime is valid. The Mortgage Bankers ruling invalidates a 1997 decision by the Court of Appeals for the D.C. Circuit. The 1997 decision (Paralyzed Veterans of America v. D.C. Arena, L.P.) and many subsequent decisions held that an agency must use the notice-and-comment procedures prescribed by the Administrative Procedure Act (APA) when it wants to issue a new interpretation of a regulation that significantly differs from a previously adopted interpretation. The Supreme Court’s ruling says the Paralyzed Veterans doctrine is contrary to the APA and improperly imposes obligations on agencies that are beyond APA’s requirements. Since an agency isn’t required to use notice-and-comment procedures to issue an initial interpretative rule, it isn’t required to use those procedures to amend or repeal that rule.
During a wage and hour investigation, employers may be called on to produce records and answer questions regarding a wide variety of issues. The significant issues that may be raised by an investigation are listed below.
FLSA applies in all states, but some states have their own sets of regulations. If there is a conflict between a state law and the FLSA, then employers must follow the rule that is more beneficial to employees.
Under FLSA, the following categories of employees are exempt from overtime: executives, administrative employees, professional employees, and outside and certain retail sales personnel. Please see the national Exempt Personnel section.
All nonexempt employees must be paid at least the federal minimum wage ($7.25 per hour) and at least 11/2 times their regular hourly pay rates for overtime hours worked. Please see the national Minimum Wage, national Overtime sections. During an investigation, auditors look at job responsibilities to determine if each employee has been properly classified. If a nonexempt employee (or an independent contractor) was improperly classified as exempt, then he or she may be entitled to back overtime pay.
Employers are required to make, keep, and preserve employees' records, including wages earned and hours worked, for a specified period of time. Although there is no particular form for the records, they must include certain identifying information about each employee and accurate data about the hours worked and wages earned.
Three-year record retention requirement. Employers must keep the following records for 3 years:
• Employee name and address
• Occupation
• Birth date if under the age of 19
• Gender
• Complete payroll records and certificates
• Union agreements
• Notices
• Written training agreements
• Notices of wage-hour department
• Sales and purchase records
• Certificate of age until termination
Two-year record retention requirement. Records that must be kept for 2 years include basic employment and earnings records, such as:
• Time cards or units produced when the number of units helps determine employee wages
• Wage rate tables
• Additions to or deductions from wages
• Wage differential payments to employees of the opposite sex who are employed in the same job
• Evaluations
• Job descriptions
• Merit or seniority systems
Please see the national Records section.
Youths under the age of 20 may be paid an “opportunity wage” of $4.25 per hour during the first 90 calendar days of employment, as long as the employer does not displace another employee in order to hire a youth at the lower wage. The FLSA prohibits the shipment of goods in interstate commerce produced in violation of the minimum wage, overtime pay, child labor, or special minimum wage provisions. Many state laws also govern the wage and hour limitations on child labor. Please see the national Child Labor section.
Please see the state Child Labor section.
The Equal Pay Act (EPA) and Title VII of the Civil Rights Act prohibit gender-based differences in pay in companies engaged in interstate commerce. Please see the national Equal Pay/Comparable Worth section.
Every employer subject to the minimum wage provisions must post a notice in conspicuous places in every division where employees work. If workers are not subject to minimum wage provisions because of an exemption in the FLSA, the notice may be modified to state that overtime provisions do not apply in certain situations. Please see the national Notices (Posting) section.
The following are some strategies to prevent a wage and hour investigation:
Avoid unfair compensation practices. Make sure employees are compensated in a consistent manner. If an employer's pay practices are consistent, complaints are less likely to arise, and the employer will be in a better situation if DOL does launch an investigation.
Understand the regulations. It is important that employers take the time and make a concerted effort to understand and familiarize themselves with the FLSA. It is the law, and if employers fail to follow the law they may face litigation or a DOL audit.
Training. Train managers so they are fluent in the language of the FLSA.
Analyze state versus federal law. Determine whether the state’s wage and hour laws conflict with federal law, then follow the law that is most beneficial to the employee.
Pay past overtime due. If it is determined that an employee is wrongly classified as exempt, the employer should determine how many overtime hours the employee has worked in the past 2 years, then pay the employee the overtime due. The employer should also have the employee sign a release to free the employer from further liability. Paying past overtime due to employees now will be far less expensive than paying them in a DOL settlement.
Respond to internal complaints expeditiously. If an employee files a wage and hour complaint internally, the employer should take it seriously. Since many investigations are prompted by an employee's complaint, employers might be able to prevent an investigation by addressing an employee's initial internal complaint.
Seek compliance assistance from DOL. Various compliance tools and information are available on DOL's website at http://www.dol.gov.
Conduct a self-audit. Employers can hire attorneys to audit their companies--or they can do it themselves before DOL initiates an investigation. Conducting a self-audit helps ensure compliance with federal and state laws. As part of an audit, employers should:
• Review job descriptions to determine whether they are still accurate, reflect the jobs being performed, and reflect the skills necessary to perform the job.
• Review employees’ actual job duties to ensure that they still fall within the administrative, executive, professional, computer, or outside sales exemptions.
• Make sure overtime for nonexempt employees has been properly calculated. For instance, bonuses and shift premiums should be included in the calculation of the regular rate of pay.
• Make sure the required posters have been hung in the appropriate places in the workplace.
There are a variety of fines and penalties an employer may face for violating the law:
• An employee may file suit to recover back wages and overtime and an equal amount in liquidated damages, plus attorneys’ fees and court costs.
• The secretary of labor may file suit on behalf of employees for back wages and an equal amount in liquidated damages.
• The secretary may obtain a court injunction to restrain any person from violating the law, including unlawfully withholding proper minimum wage and overtime pay.
• Civil money penalties may be assessed for child labor violations and violations of the FLSA’s minimum wage or overtime requirements.
• Employers that have willfully violated the law may face criminal penalties, including fines and imprisonment.
• Employees who have filed complaints or provided information during an investigation are protected under the law. They may not be discriminated against or discharged for having done so. If they are, they may file a suit or the secretary of labor may file a suit on their behalf for relief, including reinstatement to their jobs and payment of wages lost plus monetary damages.
Some of these penalties are found in other laws administered by WHD, such as the Migrant and Seasonal Agricultural Worker Protection Act, which also provides for the assessment of civil money penalties, criminal sanctions, fines and imprisonment.
In the case of the government contracts, the statutes provide that contract funds may be withheld for violations under the Walsh-Healey Public Contracts Act, McNamara-O’Hara Service Contract Act, Davis-Bacon and Related Acts, and Contract Work Hours and Safety Standards Act. Administrative hearings or court action may be initiated to recover back pay under these laws. In addition, liquidated damages may be assessed for certain violations. Violators of these laws may also lose their federal contracts and be declared ineligible for future contracts for a specified period.
The amount of the penalty generally depends on the size of the business and the seriousness of the violation. In some cases, however, DOL may also consider:
• Whether the employer made a good-faith effort to comply with the FLSA
• Whether the violations were the result of a bona fide dispute of doubtful legal certainty
• Whether the employer is subject to injunction against violations of the FLSA
• The employer's commitment to future compliance
• The interval between violations
• The number of employees affected
• Whether there is any pattern to the violations
Disagreeing with a penalty. If an employer disagrees with the amount of a penalty, the employer must take exception to it within 15 days after receipt of the notice of determination and request a hearing. Otherwise, the administrative determination is considered final.
Collection of penalties. Once a final determination is made, the penalty is immediately due and payable via a check or money order made payable to DOL's Wage and Hour Division. The penalty must be delivered or mailed to the regional office for the area in which the violations occurred.
An employee may sue an employer, in federal or state court, for violating the minimum wage or overtime provisions of the FLSA or for retaliating against an employee for exercising rights under the FLSA. And remember, individual owners, managers, and directors may be sued individually under the FLSA. However, an employee may not personally bring a suit for recordkeeping violations.
Time limits. Suits to enforce nonwillful violations of the FLSA must be brought within 2 years after the accrual of the cause of action. Typically this means that an employer’s period of exposure is measured by counting backward 2 years from the date the lawsuit is filed. The limitations period for willful violations is 3 years.
Damages. The damages available to employees in FLSA actions are potentially huge. The available civil remedies include all unpaid compensation for time worked but not paid, or time paid at an incorrect rate, mandatory liquidated damages (equal to the amount of the unpaid compensation), equitable relief (such as reinstatement), and attorneys’ fees. Employers that have not kept accurate time records (such as in cases of employees misclassified as exempt) face even greater exposure. In such cases, an employee can basically testify to any number of hours worked per week, and the burden is on the employer to prove that a different (lesser) number of hours was actually worked by the employee.
Employees suing under the FLSA cannot recover compensatory or consequential damages (such as for emotional distress, loss of enjoyment of life, or lost opportunities). Nor are punitive damages generally available. However, some courts have held that punitive damages are available for violations of the FLSA’s antiretaliation provisions. This is because, although the FLSA limits damage claims for minimum wage and overtime reimbursement claims to unpaid compensation and an additional equal amount as liquidated damages, the damage provision for retaliation claims is open-ended and allows “such legal or equitable relief as may be appropriate to effectuate the purposes of [the Act]....” Given the open-ended nature of this provision, plaintiffs have attempted to seek punitive damages by filing retaliation claims, and the courts have been quite receptive. However, other courts have rejected such attempts.
Employers should also be aware that, unlike in other forms of employment litigation, calculation of damages is almost totally objective and based on a set formula. There are generally no mitigating factors or offsets available against back wages owed an employee.
Arbitration of FLSA claims. Employees covered by a collective bargaining agreement are entitled to bring FLSA lawsuits in federal court without exhausting the grievance procedure.
Releases. Employers attempting to negotiate settlement of a potential FLSA claim with an employee before litigation or during the course of litigation must exercise extreme caution, since releases of FLSA claims for back wages have generally been held to be unenforceable.
Defenses. There are several affirmative defenses available to employers. (An “affirmative” defense is one that the employer has the burden of proving.) Statutory defenses include statute of limitations defense and two good-faith defenses.
An employer should assert the statute of limitations defense when it appears that the employee bringing the suit was employed for a longer period of time than covered by the applicable 2- or 3-year period.
Good-faith defenses. An employer will be completely relieved of liability “if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation” issued by the administrator of the Wage and Hour Division of the DOL. In other words, an employer is protected from liability if it, in good faith, relies on the agency’s interpretation that is subsequently held to be wrong.
An employer may avoid otherwise mandatory liquidated damages if it demonstrates that its compensation practices were undertaken in good faith. At the most, an employer’s showing of good faith with reasonable grounds for believing that it was not in violation of the act will allow a judge to exercise discretion to deny or reduce liquidated damages. This does not affect attorneys’ fees and costs. To prevail under this defense, an employer must show that:
• The act or failure to act must have been in good faith, and
• It had reasonable grounds for believing that the act or omission was not in violation of the Act.
In a collective action under the FLSA, a named plaintiff sues on behalf of himself and “other employees similarly situated.” No employee may be a party plaintiff to such an action “unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” This is very different from a class action under Fed. R. Civ. P. 23(b)(3) in which the consent of class members is not required where class members instead have a right to be notified of the class action and to opt out of it and seek their own remedies. Under the FLSA, on the other hand, if an individual has not given written consent to join the suit, or if the individual has given consent but has not filed the consent with the court, that individual cannot be a party. Conversely, a similarly situated plaintiff who decides not to join a pending collective action is not bound by the outcome of that case—he or she retains his or her own claim, and can sue the employer later, individually, or even bring a separate collective action against the employer, rounding up similarly situated employees who failed to join up previously.
Process. The fact that a collective action has been filed does not toll the limitation periods for potential plaintiffs. Rather, the statute of limitations for each opt-in plaintiff’s FLSA claim continues to run until an individual files his or her signed statement with the court. District courts have discretionary power to authorize the sending of notice to potential class members in a collective action brought pursuant to FLSA Sec. 216(b). In determining if the named plaintiff is similarly situated to the presumed members of a collective action, the majority of courts use a two-step approach. Under this approach, two levels of review are utilized, depending on the procedural stage of the case.
The first tier, which typically occurs very early in the litigation before any discovery has taken place, is known as the notice-stage determination and typically results in conditional certification of a representative class. At the notice stage, courts typically require nothing more than substantial allegations that the presumed class members were together the victims of a single decision, policy, or plan infected by discrimination. To establish that employees are similarly situated, a plaintiff must show that they are similarly situated with respect to their job requirements and with regard to their pay provisions. The positions need not be identical, but similar.
The second tier involves a more strict level of scrutiny and typically follows a defendant's motion for decertification of the collective action at or near the close of discovery. In this phase of the inquiry, the court reviews several factors, including:
• Disparate factual and employment settings of the individual plaintiffs;
• The various defenses available to the defendant that appear to be individual to each plaintiff; and
• Fairness and procedural questions.
The U.S. Supreme Court has ruled that an employer's offer to settle an employee's unpaid wage claim effectively cut off her lawsuit even though she never accepted the offer (Genesis Healthcare Corp. v. Symczyk, S. CT. No. 11–1059 (2013)). A registered nurse in Pennsylvania filed a collective action against her former employer, Genesis Healthcare, claiming it violated the FLSA by automatically deducting half an hour of pay from her daily wages for meal breaks. Rather than litigating the issue of how many times the plaintiff worked through her meal breaks, Genesis made an "offer of judgment," which is a type of settlement offer to a plaintiff. She never responded to the offer. The Supreme Court stated that Genesis' offer of judgment rendered the plaintiff's individual claims moot and that the collective action couldn't continue. The Court explained that once her entire claim was satisfied, the plaintiff couldn't adequately represent the interests of the unidentified coworkers who would have been members of her collective action. Employers facing collective actions under the FLSA can consider using offers of judgment as a tool for expeditiously resolving such lawsuits. If you offer an amount that fully satisfies the lead plaintiff's claim and no other employees have opted into the collective action, the lawsuit will likely be dismissed under the Supreme Court's ruling.
The U.S. Supreme Court heardCampbell-Ewald Co. v. Gomez, No. 13-55486 (9th Cir. 2014)during its fall 2015 term. In this case, we expect the Court to make a determination on whether an employee’s individual and Rule 23 class action claims are moot when the employee receives an offer of judgment from the employer.
The U.S. Supreme Court also heard Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (8th Cir. 2014) during its fall 2015 term. The Court will rule on whether, when certifying a class or collective action, differences between members of the class can be ignored in a situation where statistical techniques that assume the class members are all identical will be used to determine the company’s liability and damages awarded. In addition, the Court will also rule on whether a class or collective action can be certified or authorized when it contains hundreds of members who suffered no injuries and have no legal right to damages.
Employers can contact DOL with any questions about wage and hour issues. Their national office is located at:
U.S. Department of Labor
Wage and Hour Division
200 Constitution Avenue, NW
Washington, DC 20210
866-487-9243 (toll-free)
Last updated on February 17, 2016.
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National
U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) is responsible for administering and enforcing a number of federal laws that set basic labor standards. WHD conducts investigations for a number of reasons, all having to do with enforcement of the laws and ensuring an employer’s compliance. An investigator from WHD may conduct an investigation to determine whether the laws it enforces apply to an employer. If the employer is subject to these laws, the investigator will verify that workers are paid and employed properly according to the laws administered and that youths under the age of 18 are employed as provided by the child labor provisions. WHD does not require an investigator to previously announce the scheduling of an investigation, although in many instances the investigator will advise an employer before opening the investigation. The investigator has sufficient latitude to initiate unannounced investigations in many cases in order to directly observe normal business operations and quickly develop factual information . An investigator may also visit an employer to provide information about the application of, and compliance with, the labor laws administered by WHD.
WHD does not typically disclose the reason for an investigation. Many are initiated by complaints. All complaints are confidential, so the name of the worker, the nature of the complaint, and whether a complaint exists may not be disclosed. In addition to complaints, WHD selects certain types of businesses or industries for investigation. WHD often targets low-wage industries because of high rates of violations or egregious violations, the employment of vulnerable workers, or rapid changes, such as growth or decline, in an industry. Occasionally, a number of businesses in a specific geographic area are examined. The objective of targeted investigations is to improve compliance with the laws in those businesses, industries, or localities. Regardless of the particular reason that prompted the investigation, all investigations are conducted in accordance with established policies and procedures.
The WHD has stated that it will focus on fissured industries. These are industries where employers often employ people through various relationships, including employment agencies, contractors and subcontractors, and franchises.
During an investigation, DOL representatives visit a business and gather data on wages, hours, and other employment conditions or practices in order to determine compliance with the law. WHD does not require an investigator to previously announce the scheduling of an investigation, although investigators will often advise an employer before opening the investigation. The investigator has sufficient latitude to initiate unannounced investigations in many cases in order to directly observe normal business operations and develop factual information quickly. If violations are found, the employer may owe back pay, face penalties, and be advised by DOL to make changes in employment practices in order to avoid future violations.
Section 11(a) of the Fair Labor Standards Act (FLSA) authorizes representatives of the Department of Labor to investigate and gather data concerning wages, hours, and other employment practices; enter and inspect an employer’s premises and records; and question employees to determine whether any person has violated any provision of the FLSA. The WHD investigator will identify himself or herself and present official credentials. The investigator will explain the investigation process and the types of records required during the review. An investigation consists of the following steps:
• Visitation and inspection of the business under investigation.
• Examination of up to 3 years of records to determine which laws or exemptions apply. These records include those showing the employer’s annual dollar volume of business transactions, involvement in interstate commerce, and work on government contracts. Information from an employer’s records will not be revealed to unauthorized persons.
• Examination of payroll and time records, and taking notes or making transcriptions or photocopies essential to the investigation.
• Interviews with certain employees in private to verify the employer’s payroll and time records; to identify workers’ particular duties in sufficient detail to decide which exemptions apply, if any; and to confirm that minors are legally employed. Interviews are normally conducted on the employer’s premises. In some instances, present and former employees may be interviewed at their homes or by mail or telephone.
• When all the fact-finding steps have been completed, the investigator will ask to meet with the employer or a representative who has authority to reach decisions and commit the employer to corrective actions if violations have occurred. The employer will be told whether violations have occurred, what they are, and how to correct them. If back wages are owed to employees because of minimum wage or overtime violations, the investigator will request payment of back wages and may ask the employer to compute the amount due.
DOL looks for complete, accurate, and unambiguous pay records for every employee for each pay period from the past 3 years. As a result, it is imperative that employers strive to keep accurate, well-organized wage and hour records that can be produced quickly.
In general, employers in the following categories must comply with the wage and hour requirements of FLSA:
• Employers engaged in interstate commerce or the production of goods for interstate commerce
• All hospitals, schools, and public agencies
Employees in firms not covered by the FLSA might still be protected under the Act if their individual work involves interstate commerce or the production of goods for interstate commerce. Please see the national Fair Labor Standards Act (FLSA) section.
Tip: If an employer believes that it may have wage and hour issues, it should contact an attorney experienced in wage and hour investigations as soon as possible. An experienced attorney can provide details about the employer's rights and responsibilities from the outset.
The FLSA prohibits employers from discharging or discriminating against any employee who files a wage and hour complaint or who provides information during a DOL investigation. As a result, employers should be cautious not to discourage employee cooperation with wage and hour investigations or to respond negatively to any employee who files a wage and hour complaint.
In order to prepare for a wage and hour investigation, consider taking the following steps:
• Appoint a company representative or legal counsel to interact with the DOL investigator.
• Before providing information or documents to DOL, the representative or attorney should determine the scope of the investigation and review all documents before handing them over to DOL.
• Prepare a legal and factual “position statement” for the investigator, outlining any compliance steps taken by the organization.
• Provide managers with relevant information and interview employees in advance so that everyone is better prepared to respond to the investigator's questions.
• Do not discourage employee cooperation with wage and hour investigations or respond negatively to any employee who files a wage and hour complaint.
Cooperation is key. Employers should demonstrate their willingness to cooperate with DOL investigators and to adjust their procedures and policies as necessary to avoid violations in the future.
A U.S. Supreme Court ruling on how the DOL can issue interpretations of its rules has major implications for employers. The U.S. Supreme Court’s decision inPerez v. Mortgage Bankers Association, No. 13-1041 (S. Ct. 2015)means that DOL’s most recent interpretation that mortgage loan officers are eligible for overtime is valid. The Mortgage Bankers ruling invalidates a 1997 decision by the Court of Appeals for the D.C. Circuit. The 1997 decision (Paralyzed Veterans of America v. D.C. Arena, L.P.) and many subsequent decisions held that an agency must use the notice-and-comment procedures prescribed by the Administrative Procedure Act (APA) when it wants to issue a new interpretation of a regulation that significantly differs from a previously adopted interpretation. The Supreme Court’s ruling says the Paralyzed Veterans doctrine is contrary to the APA and improperly imposes obligations on agencies that are beyond APA’s requirements. Since an agency isn’t required to use notice-and-comment procedures to issue an initial interpretative rule, it isn’t required to use those procedures to amend or repeal that rule.
During a wage and hour investigation, employers may be called on to produce records and answer questions regarding a wide variety of issues. The significant issues that may be raised by an investigation are listed below.
FLSA applies in all states, but some states have their own sets of regulations. If there is a conflict between a state law and the FLSA, then employers must follow the rule that is more beneficial to employees.
Under FLSA, the following categories of employees are exempt from overtime: executives, administrative employees, professional employees, and outside and certain retail sales personnel. Please see the national Exempt Personnel section.
All nonexempt employees must be paid at least the federal minimum wage ($7.25 per hour) and at least 11/2 times their regular hourly pay rates for overtime hours worked. Please see the national Minimum Wage, national Overtime sections. During an investigation, auditors look at job responsibilities to determine if each employee has been properly classified. If a nonexempt employee (or an independent contractor) was improperly classified as exempt, then he or she may be entitled to back overtime pay.
Employers are required to make, keep, and preserve employees' records, including wages earned and hours worked, for a specified period of time. Although there is no particular form for the records, they must include certain identifying information about each employee and accurate data about the hours worked and wages earned.
Three-year record retention requirement. Employers must keep the following records for 3 years:
• Employee name and address
• Occupation
• Birth date if under the age of 19
• Gender
• Complete payroll records and certificates
• Union agreements
• Notices
• Written training agreements
• Notices of wage-hour department
• Sales and purchase records
• Certificate of age until termination
Two-year record retention requirement. Records that must be kept for 2 years include basic employment and earnings records, such as:
• Time cards or units produced when the number of units helps determine employee wages
• Wage rate tables
• Additions to or deductions from wages
• Wage differential payments to employees of the opposite sex who are employed in the same job
• Evaluations
• Job descriptions
• Merit or seniority systems
Please see the national Records section.
Youths under the age of 20 may be paid an “opportunity wage” of $4.25 per hour during the first 90 calendar days of employment, as long as the employer does not displace another employee in order to hire a youth at the lower wage. The FLSA prohibits the shipment of goods in interstate commerce produced in violation of the minimum wage, overtime pay, child labor, or special minimum wage provisions. Many state laws also govern the wage and hour limitations on child labor. Please see the national Child Labor section.
Please see the state Child Labor section.
The Equal Pay Act (EPA) and Title VII of the Civil Rights Act prohibit gender-based differences in pay in companies engaged in interstate commerce. Please see the national Equal Pay/Comparable Worth section.
Every employer subject to the minimum wage provisions must post a notice in conspicuous places in every division where employees work. If workers are not subject to minimum wage provisions because of an exemption in the FLSA, the notice may be modified to state that overtime provisions do not apply in certain situations. Please see the national Notices (Posting) section.
The following are some strategies to prevent a wage and hour investigation:
Avoid unfair compensation practices. Make sure employees are compensated in a consistent manner. If an employer's pay practices are consistent, complaints are less likely to arise, and the employer will be in a better situation if DOL does launch an investigation.
Understand the regulations. It is important that employers take the time and make a concerted effort to understand and familiarize themselves with the FLSA. It is the law, and if employers fail to follow the law they may face litigation or a DOL audit.
Training. Train managers so they are fluent in the language of the FLSA.
Analyze state versus federal law. Determine whether the state’s wage and hour laws conflict with federal law, then follow the law that is most beneficial to the employee.
Pay past overtime due. If it is determined that an employee is wrongly classified as exempt, the employer should determine how many overtime hours the employee has worked in the past 2 years, then pay the employee the overtime due. The employer should also have the employee sign a release to free the employer from further liability. Paying past overtime due to employees now will be far less expensive than paying them in a DOL settlement.
Respond to internal complaints expeditiously. If an employee files a wage and hour complaint internally, the employer should take it seriously. Since many investigations are prompted by an employee's complaint, employers might be able to prevent an investigation by addressing an employee's initial internal complaint.
Seek compliance assistance from DOL. Various compliance tools and information are available on DOL's website at http://www.dol.gov.
Conduct a self-audit. Employers can hire attorneys to audit their companies--or they can do it themselves before DOL initiates an investigation. Conducting a self-audit helps ensure compliance with federal and state laws. As part of an audit, employers should:
• Review job descriptions to determine whether they are still accurate, reflect the jobs being performed, and reflect the skills necessary to perform the job.
• Review employees’ actual job duties to ensure that they still fall within the administrative, executive, professional, computer, or outside sales exemptions.
• Make sure overtime for nonexempt employees has been properly calculated. For instance, bonuses and shift premiums should be included in the calculation of the regular rate of pay.
• Make sure the required posters have been hung in the appropriate places in the workplace.
There are a variety of fines and penalties an employer may face for violating the law:
• An employee may file suit to recover back wages and overtime and an equal amount in liquidated damages, plus attorneys’ fees and court costs.
• The secretary of labor may file suit on behalf of employees for back wages and an equal amount in liquidated damages.
• The secretary may obtain a court injunction to restrain any person from violating the law, including unlawfully withholding proper minimum wage and overtime pay.
• Civil money penalties may be assessed for child labor violations and violations of the FLSA’s minimum wage or overtime requirements.
• Employers that have willfully violated the law may face criminal penalties, including fines and imprisonment.
• Employees who have filed complaints or provided information during an investigation are protected under the law. They may not be discriminated against or discharged for having done so. If they are, they may file a suit or the secretary of labor may file a suit on their behalf for relief, including reinstatement to their jobs and payment of wages lost plus monetary damages.
Some of these penalties are found in other laws administered by WHD, such as the Migrant and Seasonal Agricultural Worker Protection Act, which also provides for the assessment of civil money penalties, criminal sanctions, fines and imprisonment.
In the case of the government contracts, the statutes provide that contract funds may be withheld for violations under the Walsh-Healey Public Contracts Act, McNamara-O’Hara Service Contract Act, Davis-Bacon and Related Acts, and Contract Work Hours and Safety Standards Act. Administrative hearings or court action may be initiated to recover back pay under these laws. In addition, liquidated damages may be assessed for certain violations. Violators of these laws may also lose their federal contracts and be declared ineligible for future contracts for a specified period.
The amount of the penalty generally depends on the size of the business and the seriousness of the violation. In some cases, however, DOL may also consider:
• Whether the employer made a good-faith effort to comply with the FLSA
• Whether the violations were the result of a bona fide dispute of doubtful legal certainty
• Whether the employer is subject to injunction against violations of the FLSA
• The employer's commitment to future compliance
• The interval between violations
• The number of employees affected
• Whether there is any pattern to the violations
Disagreeing with a penalty. If an employer disagrees with the amount of a penalty, the employer must take exception to it within 15 days after receipt of the notice of determination and request a hearing. Otherwise, the administrative determination is considered final.
Collection of penalties. Once a final determination is made, the penalty is immediately due and payable via a check or money order made payable to DOL's Wage and Hour Division. The penalty must be delivered or mailed to the regional office for the area in which the violations occurred.
An employee may sue an employer, in federal or state court, for violating the minimum wage or overtime provisions of the FLSA or for retaliating against an employee for exercising rights under the FLSA. And remember, individual owners, managers, and directors may be sued individually under the FLSA. However, an employee may not personally bring a suit for recordkeeping violations.
Time limits. Suits to enforce nonwillful violations of the FLSA must be brought within 2 years after the accrual of the cause of action. Typically this means that an employer’s period of exposure is measured by counting backward 2 years from the date the lawsuit is filed. The limitations period for willful violations is 3 years.
Damages. The damages available to employees in FLSA actions are potentially huge. The available civil remedies include all unpaid compensation for time worked but not paid, or time paid at an incorrect rate, mandatory liquidated damages (equal to the amount of the unpaid compensation), equitable relief (such as reinstatement), and attorneys’ fees. Employers that have not kept accurate time records (such as in cases of employees misclassified as exempt) face even greater exposure. In such cases, an employee can basically testify to any number of hours worked per week, and the burden is on the employer to prove that a different (lesser) number of hours was actually worked by the employee.
Employees suing under the FLSA cannot recover compensatory or consequential damages (such as for emotional distress, loss of enjoyment of life, or lost opportunities). Nor are punitive damages generally available. However, some courts have held that punitive damages are available for violations of the FLSA’s antiretaliation provisions. This is because, although the FLSA limits damage claims for minimum wage and overtime reimbursement claims to unpaid compensation and an additional equal amount as liquidated damages, the damage provision for retaliation claims is open-ended and allows “such legal or equitable relief as may be appropriate to effectuate the purposes of [the Act]....” Given the open-ended nature of this provision, plaintiffs have attempted to seek punitive damages by filing retaliation claims, and the courts have been quite receptive. However, other courts have rejected such attempts.
Employers should also be aware that, unlike in other forms of employment litigation, calculation of damages is almost totally objective and based on a set formula. There are generally no mitigating factors or offsets available against back wages owed an employee.
Arbitration of FLSA claims. Employees covered by a collective bargaining agreement are entitled to bring FLSA lawsuits in federal court without exhausting the grievance procedure.
Releases. Employers attempting to negotiate settlement of a potential FLSA claim with an employee before litigation or during the course of litigation must exercise extreme caution, since releases of FLSA claims for back wages have generally been held to be unenforceable.
Defenses. There are several affirmative defenses available to employers. (An “affirmative” defense is one that the employer has the burden of proving.) Statutory defenses include statute of limitations defense and two good-faith defenses.
An employer should assert the statute of limitations defense when it appears that the employee bringing the suit was employed for a longer period of time than covered by the applicable 2- or 3-year period.
Good-faith defenses. An employer will be completely relieved of liability “if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation” issued by the administrator of the Wage and Hour Division of the DOL. In other words, an employer is protected from liability if it, in good faith, relies on the agency’s interpretation that is subsequently held to be wrong.
An employer may avoid otherwise mandatory liquidated damages if it demonstrates that its compensation practices were undertaken in good faith. At the most, an employer’s showing of good faith with reasonable grounds for believing that it was not in violation of the act will allow a judge to exercise discretion to deny or reduce liquidated damages. This does not affect attorneys’ fees and costs. To prevail under this defense, an employer must show that:
• The act or failure to act must have been in good faith, and
• It had reasonable grounds for believing that the act or omission was not in violation of the Act.
In a collective action under the FLSA, a named plaintiff sues on behalf of himself and “other employees similarly situated.” No employee may be a party plaintiff to such an action “unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” This is very different from a class action under Fed. R. Civ. P. 23(b)(3) in which the consent of class members is not required where class members instead have a right to be notified of the class action and to opt out of it and seek their own remedies. Under the FLSA, on the other hand, if an individual has not given written consent to join the suit, or if the individual has given consent but has not filed the consent with the court, that individual cannot be a party. Conversely, a similarly situated plaintiff who decides not to join a pending collective action is not bound by the outcome of that case—he or she retains his or her own claim, and can sue the employer later, individually, or even bring a separate collective action against the employer, rounding up similarly situated employees who failed to join up previously.
Process. The fact that a collective action has been filed does not toll the limitation periods for potential plaintiffs. Rather, the statute of limitations for each opt-in plaintiff’s FLSA claim continues to run until an individual files his or her signed statement with the court. District courts have discretionary power to authorize the sending of notice to potential class members in a collective action brought pursuant to FLSA Sec. 216(b). In determining if the named plaintiff is similarly situated to the presumed members of a collective action, the majority of courts use a two-step approach. Under this approach, two levels of review are utilized, depending on the procedural stage of the case.
The first tier, which typically occurs very early in the litigation before any discovery has taken place, is known as the notice-stage determination and typically results in conditional certification of a representative class. At the notice stage, courts typically require nothing more than substantial allegations that the presumed class members were together the victims of a single decision, policy, or plan infected by discrimination. To establish that employees are similarly situated, a plaintiff must show that they are similarly situated with respect to their job requirements and with regard to their pay provisions. The positions need not be identical, but similar.
The second tier involves a more strict level of scrutiny and typically follows a defendant's motion for decertification of the collective action at or near the close of discovery. In this phase of the inquiry, the court reviews several factors, including:
• Disparate factual and employment settings of the individual plaintiffs;
• The various defenses available to the defendant that appear to be individual to each plaintiff; and
• Fairness and procedural questions.
The U.S. Supreme Court has ruled that an employer's offer to settle an employee's unpaid wage claim effectively cut off her lawsuit even though she never accepted the offer (Genesis Healthcare Corp. v. Symczyk, S. CT. No. 11–1059 (2013)). A registered nurse in Pennsylvania filed a collective action against her former employer, Genesis Healthcare, claiming it violated the FLSA by automatically deducting half an hour of pay from her daily wages for meal breaks. Rather than litigating the issue of how many times the plaintiff worked through her meal breaks, Genesis made an "offer of judgment," which is a type of settlement offer to a plaintiff. She never responded to the offer. The Supreme Court stated that Genesis' offer of judgment rendered the plaintiff's individual claims moot and that the collective action couldn't continue. The Court explained that once her entire claim was satisfied, the plaintiff couldn't adequately represent the interests of the unidentified coworkers who would have been members of her collective action. Employers facing collective actions under the FLSA can consider using offers of judgment as a tool for expeditiously resolving such lawsuits. If you offer an amount that fully satisfies the lead plaintiff's claim and no other employees have opted into the collective action, the lawsuit will likely be dismissed under the Supreme Court's ruling.
The U.S. Supreme Court heardCampbell-Ewald Co. v. Gomez, No. 13-55486 (9th Cir. 2014)during its fall 2015 term. In this case, we expect the Court to make a determination on whether an employee’s individual and Rule 23 class action claims are moot when the employee receives an offer of judgment from the employer.
The U.S. Supreme Court also heard Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (8th Cir. 2014) during its fall 2015 term. The Court will rule on whether, when certifying a class or collective action, differences between members of the class can be ignored in a situation where statistical techniques that assume the class members are all identical will be used to determine the company’s liability and damages awarded. In addition, the Court will also rule on whether a class or collective action can be certified or authorized when it contains hundreds of members who suffered no injuries and have no legal right to damages.
Employers can contact DOL with any questions about wage and hour issues. Their national office is located at:
U.S. Department of Labor
Wage and Hour Division
200 Constitution Avenue, NW
Washington, DC 20210
866-487-9243 (toll-free)
Last updated on February 17, 2016.
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